ACEEE | Utility Policies

Utility Policies

Policies and programs that address customer end uses of energy are critical for achieving greater energy efficiency within the electric and natural gas utility sectors. States use ratepayer funds to administer programs that advance the deployment of energy efficiency in numerous sectors, including residential and commercial buildings, industry, and public institutions. States use different models to administer ratepayer funds, allowing utilities to run programs, utilizing a third-party, or blending these models.

The policies that underpin these programs include utility regulation and legislation that guides state efforts to advance energy efficiency. Regulations can provide utility incentives to pursue energy efficiency and compensate a utility’s lost revenue from energy efficiency measures in a process known as “decoupling”. State legislatures can prod utility commissions to adopt these regulations with explicit legislation. Another major policy states can adopt is the Energy Efficiency Resource Standard (EERS), which requires utilities to annually save a certain percentage of energy over a multi-year period.

The ACEEE Utility database pages primarily address the electric sector as it has historically been the main focus in most states for program funding and initiatives. We include less information on natural gas sector policies and programs as these are often interwoven or otherwise closely related to electric sector policies and programs. Some states also have well-established efficiency programs for both electricity and natural gas. In future editions of these summaries we plan to include similar information specifically about policies and programs in the natural gas sector.

More on Utility Regulation and Policy

Click a state to view its utility regulation policies.

Within the realm of state utility regulation, ACEEE focuses on six areas of policy:

Customer Energy Efficiency Programs

A wide range of state energy efficiency policies and program efforts are implemented through the utility sector and/or “public benefits” energy programs, which have the responsibility of administering and delivering electric and natural gas efficiency programs. These programs target numerous customer segments including residential and commercial buildings, industry, and agriculture. More...

Energy Efficiency Program Funding

States fund utility energy efficiency programs primarily through a charge on ratepayer utility bills known as a “Systems Benefits Charge (SBC)”. The SBC may be collected by the utility, the state, or a third-party administrator. Other sources of funding include federal and state energy programs, and funds derived from regional cap and trade initiatives.

Energy Efficiency Resource Standards

An Energy Efficiency Resource Standard (EERS) is a quantitative, long-term energy savings target for utilities. Under direction from this policy, utilities must procure a percentage of their future electricity and natural gas needs using energy efficiency measures, typically equal to a specific percentage of their load or projected load growth. Energy savings are typically achieved through customer, end-use efficiency programs run by utilities or third-party program operators, sometimes with the flexibility to achieve the target through a market-based trading system. As of June 2011, twenty-six states have an EERS. More...

Alternative Business Models

States that promote alternative business models for utilities through mechanisms such as decoupling attempt to disassociate a utility's revenues from sales, which makes the utility indifferent to maximizing sales. Although this does not necessarily make the utility more likely to promote efficiency programs, it removes the disincentive for them to do so. More...

Reward Structures for Successful Energy Efficiency Programs

These incentive structures are performance incentives that reward utilities (and in some cases, non-utility organizations) for reaching or exceeding specified program goals. These mechanisms have received a great deal of attention recently with a number of states enacting them in order to support increased energy efficiency initiatives and programs.

Energy Efficiency as a Resource

States can use a number of policy and regulatory tools to treat energy efficiency as a resource equally important to supply resources. Putting energy efficiency on level footing with supply resources enables its advancement throughout the utility sector. More...

Leading States

Leading States identified in ACEEE's State Energy Efficiency Scorecard have made major strides in incorporating engery efficiency into their utility sector and/or public benefts programs, including robust spending on efficiency, high levels of energy savings, agressive energy savings targets, and supporting policies to remove disincentives to utilities and to reward utilities for meeting goals.

Vermont

Vermont continues to be a leader in Utility and Public Benefits Programs and Policies. Efficiency Vermont, which began operations in 2000, is the state’s provider of electric energy efficiency services, funded by an “energy efficiency charge” or “EEC” that is included in electric rates on customers’ monthly electric bills. In 2009, the state budgeted $30 million on electric efficiency programs, which is equivalent to 4.4% of utility revenues, more than any other state and nearly 5 times the national average. State efficiency programs saved 1.7% of the state’s electric needs in 2007and 2.6% in 2008. State gas efficiency programs also lead the nation, with relative spending levels the highest of any state. In addition to spending and savings data, Vermont has set aggressive energy efficiency targets and established utility performance incentives for the state's "energy efficiency utility" (Efficiency Vermont) to encourage targets to be met. It also recently approved a decoupling plan for Green Mountain Power, one of the state's investor-owned electric utilities.

California

California’s utility-sector energy efficiency programs date back to the 1970s and have significantly expanded over the past three decades. The state’s investor-owned utilities and publicly-owned utilities administer energy efficiency programs. In 2009, utilities budgeted almost $1 billion on utility-sector efficiency programs, equivalent to about 2.9% of utility revenues. Electricity savings from these programs totaled about 1.1% of the state’s electric needs in 2008. Also, decoupling has been in place for many years in California and is an integral policy for California's "big, bold" energy efficiency initiative. In the next few years California will need to further expand their energy use reduction efforts to meet climate change goals enacted into law in 2006, which call for reducing greenhouse gas emissions to 1990 levels by 2020.

Massachusetts

Massachusetts is a leading state with a long, successful record of energy efficiency programs, which are managed and implemented by electric and natural gas distributors. In 2009, electric utilities budgeted about $183.8 million on efficiency programs in the state, which is equivalent to about 2.2% of utility revenues, and reported savings equivalent to about 0.7% of the state’s electricity needs. The Green Communities Act of 2008 established a new process for the design and approval of efficiency programs, made cost-effective energy efficiency the “first-priority” resource, and created the Energy Efficiency Advisory Council (EEAC) to work with utilities to establish statewide efficiency plans for three-year cycles. In 2009, Massachusetts natural gas and electric utilities submitted their Joint Statewide Three-Year Energy Efficiency Plans, which propose to double annual savings in both electric and natural gas use by 2012 compared to 2009 levels. The approved plans set an electricity savings target of 2.4% of sales in 2012. In addition, shareholder incentives are in place for utility efficiency programs that meet established program goals and the state has announced a regulatory policy in favor of decoupling; electric and natural gas utilities must include a decoupling proposal in their next rate case.